After a rally Monday the market welcomed a calmer day as the focus turned to new issues that featured a good mix of taxable and tax-exempts.
The taxable market firmed a bit today after widening yesterday for the first time this year, according to one New York taxable trader.
“The combination of Treasury yields roughly 30 to 40 basis points lower and spreads tighter brought out some sellers,” he said.
While some attendees and participants at The Bond Buyer National Outlook conference said that issuers are doing taxable deals for
Participants at the conference such as Vikram Rai, head of municipal strategy at Citigroup and Rick Kolman, managing director at Academy Securities said that taxable refundings “don’t make sense.”
The taxable trader disagreed, saying that these deals are happening as a replacement and alternative to issuing advance refunding, which were eliminated in tax reform.
“The answer [as to why issuers are doing these taxable deals] is because they can’t just do a refunding, as advance refundings have been eliminated,” he said. “The compression of yields have made the math work for taxable vs tax-exempt refundings. Plus the use of corporate structure and CUSIPs (especially index-eligible bonds) have increased the demand so spreads come even tighter.”
He also noted that the current state of the taxable market is tight and firm.
Infrastructure bill may be possible this year?
Despite the current acrimonious tone that surrounds all that’s going on in Washington, some think the spirit of bipartisanship still breathes when it comes to infrastructure.
In a panel at The Bond Buyer’s National Outlook Conference in New York on Tuesday, Bob Spangler, co-head of municipal finance at RBC Capital Markets, said there “is a very high probability of an infrastructure bill this year.”
He said he has spent “a fair amount of time on Capitol Hill lately, talking to legislators and understanding where they are, and there is a very strong interest on the part of Democrats in trying to get and infrastructure bill done and there’s a very strong interest on the part of the president and the Administration.”
Spangler said the House Ways and Means Committee is set to hold hearings on an infrastructure financing bill and that the Senate is laying the groundwork for legislation.
“The key will be ‘How are you going to pay for it?’” he said.
Howard Zucker, a partner at Hawkins Delafield & Wood LLP, moderated the panel discussion called “Opportunities for the Year by the Industry Leaders."
Besides Spangler, panelists included Christopher Fink, managing director at BofA Securities, Daniel Tomson, managing director and co-head of public finance at Citigroup, Steven Kantor, regional managing director at Hilltop Securities, James McIntyre, director of capital markets at NYS Homes and Community Renewal, and Marjorie Henning, deputy comptroller of public finance in the NYC Comptroller’s Office.
Primary market
Investors in Tuesday’s Dormitory Authority of the State of New York’s $464.5 million deal for Langone Medical Center (A3/A/ /) got handsome yields in exchange for coupon and extension risk, according to a New York trader.
The A-rated deal was repriced by Goldman Sachs to consist of a 3% coupon in 2048 at 2.73% yield — 92 basis points cheaper than the Refinitiv MMD benchmark scale, the trader said.
The other maturities were structured and priced as 4% coupons in both 2050 and 2053 with 2.43% and 2.48% yields, respectively. The 2050 maturity was 60 cheaper than the scale and the 2053 was 65 cheaper, the trader noted.
He said although the lower coupon structure is rare, investors had a yield incentive to go long — and get paid for more risk.
“The yields were not bad; they came priced to sell and I think they priced it right,” he said, adding that there are few other deals of lower coupons to compare the deal to in the secondary market.
“They added a good chunk of yield to make up for the coupon since investors are really exposed” on the long end, the trader said of the 2.73% yield.
He pointed to a San Antonio block of gas and electric bonds rated double A with a 10-year call that traded in the secondary on Tuesday with a 5% coupon due in 2038 at a 1.70% yield — 24 basis points lower in yield than when it debuted in early January.
Investors in the DASNY deal earned “100 basis points more for extending and accepting the 3% coupon,” the trader added.
At the time of the pricing the Refinitiv MMD general obligation scale in 2034 yielded a 1.42%, he noted
Bank of America Securities priced the Escambia County Health Facilities Authority, Florida’s (Baa2/BBB+/BBB/ ) $610.35 million of healthcare facilities revenue and taxable revenue bonds for Baptist Health Care Corp. Obligated Group on Tuesday. The tax-exempt portion came in at $542.6 million, while the taxable portion was $67.695 million.
The entire taxable portion is insured by Assured Guaranty along with the $75 million half of the split 2050 maturity with a 3% coupon in the tax-exempt tranche and is rated AA by S&P Global Ratings.
Goldman Sachs priced NYU Langone Hospital’s (A3/A / / ) $571.2 million of taxable corporate CUSIP bonds.
Citi priced Connecticut Housing Finance Authority’s (Aaa/AAA/ / ) $101.195 million of housing mortgage finance program bonds subject to alternative minimum tax and non-AMT bonds for retail investors are on Tuesday.
Competitively, Fairfax County, Virginia (Aaa/AAA/AAA) sold $314.385 million of public improvement Bonds. Bank of America Securities won the bonds with a true interest cost of 1.8074%.
Secondary market
Munis were mixed on the MBIS benchmark scale, with yields falling by nine basis points in the 10-year and rising by two basis points in the 30-year maturity. High-grades were also stronger with yields on MBIS AAA scale decreasing nine basis points in the 10-year maturity and by three basis points in the 30-year maturity.
On the MMD benchmark scale, the yield on both the 10- and 30-year were unchanged from 1.18% and 1.83%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 71.8% while the 30-year muni-to-Treasury ratio stood at 87.2%, according to MMD.
Stocks were in the green while the majority of Treasury yields were up.
The Dow Jones Industrial Average was up about 0.90%, the S&P 500 Index rose around 1.29% and the Nasdaq gained about 1.53%.
The Treasury three-month was yielding 1.559%, the two-year was yielding 1.454%, the five-year was yielding 1.468%, the 10-year was yielding 1.645% and the 30-year was yielding 2.100%.
“The ICE muni yield curve is down one basis point in the longer end,” ICE Data Services said in a Tuesday market comment. “High-yield and tobaccos are also down one basis point as those markets firm. Puerto Rico is unchanged though the 8% bellwether GO bonds are up 1 1/8 point.”
Global events remained in focus Tuesday.
“With markets focusing on the virus from Wuhan, China, participants are reminded of the SARS epidemic when muni yields dropped appreciably as investors rotated to quality,” ICE said.
Previous session's activity
The MSRB reported 29,698 trades Monday on volume of $10.11 billion. The 30-day average trade summary showed on a par amount basis of $10.86 million that customers bought $5.47 million, customers sold $3.55 million and interdealer trades totaled $1.83 million.
California, New York and Texas were most traded, with the Golden State taking 14.978% of the market, the Empire State taking 13.125% and the Lone Star State taking 11.365%.
The most actively traded security was the Puerto Rico Sales Tax Financing Corp. revenue restructured bonds zeros of 2051, which traded 39 times on volume of $50.473 million.
Treasury auctions
The Treasury Department Tuesday auctioned $32 billion of seven-year notes, with a 1 1/2% coupon and a 1.570% high yield, a price of 99.537680.
The bid-to-cover ratio was 2.37.
Tenders at the high yield were allotted 90.42%. All competitive tenders at lower yields were accepted in full.
The median yield was 1.520%. The low yield was 0.880%.
Year-bills auctioned
Treasury auctioned $26 billion of 364-day bills at a 1.490% high yield, a price of 98.493444.
The coupon equivalent was 1.532%. The bid-to-cover ratio was 3.36.
Tenders at the high rate were allotted 83.42%. The median yield was 1.470%. The low yield was 1.445%.
Treasury auctions floating rate notes
Treasury also auctioned $20 billion of two-year floating rate notes with a high discount margin of 0.154%, at a 0.154% spread, a price of par.
The bid-to-cover ratio was 3.23.
Tenders at the high margin were allotted 80.88%.
The median discount margin was 0.135%. The low discount margin was 0.100%.
The index determination date is Jan. 27 and the index determination rate is 1.530%.
Treasury to sell $45B 4-week bills
Treasury said it will sell $45 billion of four-week discount bills Thursday. There are currently $35.134 billion of four-week bills outstanding.
Treasury also said it will sell $45 billion of eight-week bills Thursday.
Chip Barnett and Gary E. Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
